$1 Billion in suspicious stock activity reminiscent of pre-9/11 conditions

29 August 2007: In the weeks preceding the 2001 attacks on America, there were very significant financial warning signs that something big and bad could be about to happen. Huge surges in purchases of “put options” on stocks of United Airlines and American Airlines, the two airlines used in the attacks, and “put options” on Merrill Lynch & Co., and Morgan Stanley, stocks of two financial services companies hurt by the attack were noted. Put options are essentially “bets” that a stock or stock index will drop on or before a certain date; the larger the drop, the bigger the gain for the purchaser of the option.

Fast forward to the present day, and we have the same type of trading that took place in the days that preceded the 9/11 attacks - but on a larger scale. Nearly $1 billion of “put options” have been purchased, basically betting that Standard and Poor’s 500 index will fall significantly by the third Friday in September. A large number of these options have also been purchased calling for 50% decline by September 21, 2007. For example, a 5% drop in the Dow Jones Industrial Average would be the current equivalent of about 670 points. A decline of 11% would equal about 1,470 points in today’s market. Obviously, larger drops, such as a 50% decline, would cause an unprecedented market collapse. Money would be made for the purchaser(s) of the put options - but the same purchaser(s) stand to lose over $1 BILLION in the investment if the market remains relatively static through September 21, 2007.

The questions are: who can stand to lose $1 BILLION, who will gain in the wake of such a devastating collapse, who are the investors, and what do they know that we don’t?